KATHMANDU: Nepal Rastra Bank (NRB) has drafted specific directives and standards for regulating savings and credit cooperatives. The draft has been prepared under government directives for the Cooperative Regulation Authority, which is being established to oversee and supervise such institutions. NRB has published the draft on its website, allowing stakeholders to provide feedback until mid-February 2025.
The draft introduces various provisions, including:
1. Interest Spread: Cooperatives must maintain a 6% interest spread between loans and deposits.
2. Loan-to-Deposit Ratio: Loans cannot exceed 90% of total deposits.
3. Unsecured Loans: Unsecured loans cannot exceed NPR 300,000.
4. Membership Restriction: Transactions beyond members are prohibited.
5. Mandatory Disclosure: Transactions exceeding NPR 1 million require source disclosure.
6. Investment Restriction: Investments are limited to government bonds, excluding shares and real estate.
Additionally, cooperatives are barred from issuing loans to members who have been part of the institution for less than three months.
Key Provisions in the Draft
1. Loan Limits:
– Loans to individual members cannot exceed 15% of the cooperative’s core capital.
– Unsecured loans are limited to the lower of five times the member’s savings or NPR 300,000.
– Such loans require guarantees from at least two members.
2. Restrictions on Executives:
– Board members can only obtain loans secured by their personal savings.
3. Investment Guidelines:
– Investments can only be made in licensed cooperative banks, small farmer microfinance institutions, or government-issued bonds.
4. Asset Acquisition:
– Cooperatives operating profitably for three consecutive years may purchase or construct office properties, adhering to competitive and transparent procedures.
– Such acquisitions require approval from at least 51% of members during a general meeting and must be reported to the regulatory authority within 30 days.
5. Sectoral Lending:
– Larger cooperatives must allocate at least 50% of their total loans to agriculture, industry, and production-oriented sectors by mid-July 2027.
6. Collateral Valuation:
– Loans secured by immovable property are capped at 50% of collateral value in metropolitan areas and 60% in municipalities.
7. Grace Periods:
– Grace periods will be provided for loans in agriculture, industry, and business sectors.
8. Non-Performing Loans:
– Classification and provisioning for bad loans are required.
9. Liquidity Maintenance:
– Cooperatives must maintain liquid assets equivalent to at least 15% of total savings liabilities.
10. Dividend Restrictions:
– Dividends cannot be declared unless minimum capital requirements are met.
Establishment of Cooperative Regulation Authority
The government has decided to establish the Cooperative Regulation Authority through an ordinance introduced in late December. This authority will regulate savings and credit cooperatives based on directives and standards prepared by NRB. The ordinance also dissolves the National Cooperative Development Board Act, 2049 BS, transferring all its assets, liabilities, and employees to the new authority.
Through these measures, Nepal aims to strengthen regulation, safeguard depositors’ funds, and enhance transparency and accountability in the cooperative sector.